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Paying the price for credit card blowout

Ewa Kretowicz

AUSTRALIANS' credit cards are being slugged with one of the highest interest rates in the world.

On average, the 15 million cards in the country are being hit with a 21.99 per cent interest fee. In the past 15 years, repayments have jumped 1000 per cent from $125 million to $1.3 billion.

In comparison, interest rates on credit cards in Japan are about 3 per cent, while borrowers in Europe pay between 9 and 11 per cent for the convenience of instant cash.

A commercial law expert at UNSW's Australian School of Business, Michael Peters, said the dominance of the four big banks and GE Money led to the anomaly because they account for just under 70 per cent of cards used by Australians.

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He said the present market was uncompetitive and compared credit cards to cars.

Mr Peters said Australians needed to be educated about the real cost of credit, especially in the area of minimum repayments.

On a debt of $1000, with a standard 2 per cent minimum repayment allowed by credit card companies it would take about seven years and nine months to pay off the loan. On top of the $1000 loan, the borrower would pay $859 in interest.

Mr Peters said about 13 per cent of Australians only ever paid the minimum. But with the same scenario, increasing payments by $5 a week to $40 a month, it would take only two years and seven months to repay the same debt. Over this time, the borrower would only pay about $239 in interest saving about $620 and cutting the time it takes to pay off the credit card debt by about five years.

A professor of marketing at the University of Sydney business school, Paul Henry, said credit card use has changed dramatically in the past 10 years.

''More people are rolling over their debt each month and never pay off the entire amount,'' he said.

According to the Australian Securities and Investments Commission, the average debt per cardholder is $4757, but 15 years ago this was just $2000.

Australia's love affair with plastic blew out credit card debt to more than $50 billion for the first time last year and borrowers will be slugged with a record $1.31 billion in fees and an additional $36.3 billion of the total accruing interest.